The senate debate in June about making 100 percent health
insurance deductibility for the self-employed effective in 1999
catapulted that issue to the top of the congressional tax cut
agenda. The debate accompanied wrangling over the tobacco bill, to
which the health insurance issue was attached. In June, however,
the tobacco bill was recommitted to the Senate Committee on
Commerce, Science and Transportation, in effect killing it.

But at the end of July, House Republicans resurrected the 100
percent deductibility provision when they included it in their
managed-care health bill, which passed by a vote of 216 to 210 on
July 24.

Under current law, the health insurance deduction for the
self-employed is scheduled to increase from 40 percent to 45
percent this year, on its way to 100 percent in 2007. There is
considerable bipartisan support in Congress to expedite that
schedule, although not necessarily to 100 percent in 1999.

The House and Senate fiscal 1999 budget bills, both passed
before the Senate debate on tobacco began, assume tax cuts that
include some improvement in the health insurance deduction. The
Senate budget resolution included a cut of $30 billion over five
years, with $300 million of that earmarked for improvement in the
health insurance deduction, according to Amy Call, an aide to the
Senate Committee on the Budget. However, a small-business lobbyist
says that the Joint Tax Committee, in an unpublished estimate,
pegged the cost of bumping up the deduction to 100 percent in 1999
at as much as $6.5 billion over five years.

When the tobacco bill came up for a vote on the Senate floor in
June, senators were looking for "health promotion"
programs to spend some of the $72 billion in new cigarette taxes
on. At the top of the list was a proposal to increase the health
insurance deduction for the self-employed sooner. Both Democrats
and Republicans supported the idea. Sen. Phil Gramm (R-TX) proposed
an amendment linking 100 percent deductibility to reduced taxes for
married couples filing joint returns; the amendment passed.

By limiting his agenda to those two tax cuts, Gramm, a member of
the Senate Committee on the Budget, crowned the marriage and
self-employed health deductions the king and queen of tax cut
proposals in 1998. Even President Clinton, who is generally opposed
to tax cuts, supported the immediate 100 percent deduction,
according to an aide to Sen. Thomas A. Daschle (D-SD).

In the end, the tobacco bill may have given its life so that 100
percent health insurance deductibility for the self- employed could
live.

Stephen Barlas is a freelance business reporter who covers
the Washington beat for 15 magazines.